Cash is no longer king when it comes to consumer purchasing. Though not completely a thing of the past, people are increasingly turning to cashless alternatives when they buy. Most businesses accept payment cards as a part of their business strategy, ensuring they offer the payment methods consumers want.
Card processing fees, however, eat away at profits and leave the business with far less from each purchase than they may have anticipated.
By accepting credit or debit card payments, a business is also accepting less revenue after each transaction is completed. The fees involved in debit cards may be smaller, and not all types of charges that apply to credit cards would apply to debit card transactions.
Payment card processing fees vary, and involve different types of charges depending on several factors. This guide will tell you what you need to know about reducing the fees your business incurs when completing card transactions.
What are payment card processing fees?
Payment card processing fees are the costs that a business incurs by accepting card payments.
These costs vary, depending on factors such as
- The card network used
- The merchant’s acquirer
- How the payment was made (eg over the phone)
- The transaction value and volume
- Whether the card is credit or debit
In addition to these factors, it’s important to consider that a business may also pay additional fees such as a monthly service charge.
The parties involved in card fees
There are multiple parties that are involved in just a single swipe of a credit card. The parties include
- Credit card associations. This may be Visa, Discover, Mastercard or American Express.
- Banks that issue credit cards.
- Card processors. These are the middlemen, some referred to as acquirers or acquiring banks.
- Acquirer. A licensed entity registered at card associations, an acquirer provides card acceptance solutions via online gateways or POS payment terminals. They may use third-party agents such as payment facilitators or independent sales organisations to sell their services.
- Merchant account providers. These companies manage payment processing.
Payment gateways: the alternative to card fees
kevin. is a payment gateway provider for POS payment terminal providers. By providing payment infrastructure, kevin. allows the collecting and transferring of payment data from the point of interaction to the payment processor. And with kevin., you avoid all card processing fees thanks to account-to-account payments.
Types of credit card fees
Now that the stakeholders in payment fees have been discussed, the types of credit card fees can be presented. Often called merchant service charges, which are charged to cover the cost of processing the payment and is a transaction fee that gets added to every sale. Typically, the merchant service charge is a percentage of the total transaction amount. The rate differs for credit cards, debit cards or commercial credit cards.
The merchant service charge can be made up of various different charges, such as
1. Terminal charges. If a business is taking payments in-store rather than online, they will pay a terminal hire charge. This fee involves the PIN pad, chip reader or the contactless NFC reader. Prices will vary depending on the type of terminal. The length of the contract a business signs with the terminal provider will also determine the fee.
2. Gateway fees. Businesses that are online pay a gateway fee to cover the transaction processing costs. Some providers charge per transaction, while others require a flat monthly rate. Choosing a fixed fee may seem like the best option but often will only cover a set amount of transactions per month.
3. Authorisation fees. To put a payment through, there is a cost of authorisation involved. It ensures that the card is tested for validity and the payment succeeds. This is charged per transaction.
4. PCI compliance fees. Major credit card companies comply with the Payment Card Industry Data Security Standard, or PCI DSS. Often, there is a cost with this compliance, charged monthly to the business.
5. Administrative fees. Payment processors may choose to charge an additional administrative fee, such as for initial setup or chargebacks.
6. Interchange fees. A business pays the credit card issuer for this fee. The fee is set by the card association and is as follows: credit cards, 0.3%; debit cards, 0.2%; and commercial cards, 1.5%.
7. Payment processor fees. To facilitate payment, a processor may charge another fee. This can include account fees drawn monthly or yearly, equipment rental fees, statement fees and more, and are particular to the specific payment processor. It is usually a per authorisation or per transaction fee, but may also be per report.
8. Assessment fees. Businesses pay this fee to credit card networks to allow the purchase to take place. They’re paid based on a business’s total monthly sales.
9. Minimum monthly service charge. When a business doesn’t meet a minimum threshold of charges each month, they are charged this fee.
10. Chargeback fees. This is the fee incurred when a customer issues a chargeback for a payment. It is charged by the card association, and there can be an extra fee by the processor or external entity that covers the chargeback resolution process.
11. Batch fees. This is a charge to close out your deposits each day, also referred to as batch header fees.
12. Hosting fees. If using the traditional form of a server-based POS system, there is a fee involved in that.
13. POS software fees. Each month, a monthly fee may be paid to use your POS software.
14. Wireless access fees. Your POS terminal may be cloud-based rather than based on a traditional phone line, which involves an additional charge.
15. AVS fees. Short for address verification system, this is a charge incurred when a check is performed to ensure the address provided by a cardholder matches the address the credit card company has on file.
16. Support service fees. Payment processors may charge a monthly fee for having support service available to a business.
How much do credit card networks charge for processing fees?
The fees a business pays will differ due to which credit card processor you have and the type of card. Credit card processing fees can total up to 3% of the transaction amount. The pricing models that give differing fees include
- Tiered pricing. With this model, transaction pricing is in different tiers. Certain transactions may have a lower charge rate, while others are charged a higher fee.
- Flat-rate pricing. Just as the name indicates, the business pays a fixed percentage per transaction. With this model, a business may find it easier to estimate theri credit card processing costs over a period of time.
- Interchange plus pricing. This model involves an interchange rate paid per transaction plus any predetermined fees that are added on.
Since there are various pricing models available for each credit card network, it’s up to the business to seek out alternatives, compare offers and choose the one that best suits their needs.
How to reduce credit card processing fees
If a business wants to reduce credit card processing fees, there are a couple of options worth exploring. The first is to see whether your payment processor offers a deal. For example, some processors will give a discount for purchasing multiple card machines. Merchant account providers may offer pricing schemes that are scalable, so enquire at multiple providers before deciding to work with one.
If you want to avoid card processing fees altogether, look no further than account-to-account (A2A) payments. With A2A payments, the money is transferred from the customer account to the business account directly, bypassing card schemes and their associated fees.
Eliminate credit card charges through open banking
Seeking to get rid of credit card processing fees? One of the most effective ways to do so is via open banking. Direct bank transfers mean no more reliance on card payments. At kevin., we provide account-to-account payments at a fair price.
There are no worries about interchange fees, either. In addition, open banking offers instant settlements, which means no waiting days or weeks for the money to reach the business’s account.
The benefits of open banking are numerous. When it comes to security, open banking is considered safe. By eliminating cards, a business won’t have to worry about the chances of card fraud occurring. Higher acceptance rates and personalisation options are also features of open banking, making it the future of payments.